Global stock markets lacked direction this week after the rally in the wake of the US debt-ceiling deal fizzled out, and investors waited to see if central banks would continue their recent run of interest rate rises later this month
The Federal Reserve in the US, the European Central Bank (ECB) and the Bank of England are all scheduled to make their next monetary policy decisions in the coming fortnight. However, with signs growing that higher rates are starting to have some impact on inflation – as well as on wider economic activity – investors are hopeful that June may see at least a pause in the rate-hiking program.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.2% up for the week so far, with the S&P 500 gaining 0.3%. Both indices had made strong gains at the end of last week after the House of Representatives and the Senate acted quickly to approve plans to raise the US government’s debt ceiling, averting a potential crisis. In recent days, investors have seen more mixed data about the American economy: signs that the service sector was starting to struggle were followed by figures that indicated a surprise rise in unemployment claims. If the US labour market is indeed finally starting to soften, it could be a sign that inflationary pressures are weakening – and the Fed may therefore decide that further rate increases may no longer be necessary.
In the UK, the FTSE 100 closed on Thursday 0.1% up for the week so far. While the FTSE’s major oil companies welcomed Saudi Arabia’s decision to cut crude oil production – driving prices higher – the index’s internationally focused stocks suffered from a rise in the value of sterling against the dollar later in the week. There was good news from motor retailers, with new car sales staging a recovery, as well as signs of further expansion in the service sector. House prices continued to weaken while both housebuilding and mortgage lending were down. Construction firms warned that further interest-rate rises this year could have a disastrous impact on the sector.
In Frankfurt, the DAX index ended Thursday’s session down 0.4% for the week, while France’s CAC 40 lost 0.7%. Data showed that the eurozone economy had entered recession after shrinking in the first three months of the year: weakness in Germany and Ireland were primarily to blame after consumer spending came under severe pressure from higher energy bills. ECB officials said that further interest rate rises were under consideration since there was no clear evidence as yet that inflation in the bloc had peaked.
In Asia, the Hang Seng index in Hong Kong gained 1.8%, with investors hopeful the Chinese government could introduce stimulus measures to boost the country’s flagging economy. A report indicating that exports had fallen faster than expected in May was the latest evidence of the country’s uneven recovery since scrapping Covid-19 controls at the turn of the year. Japan’s Nikkei 225 index of leading shares, meanwhile, advanced 0.4%. Strength in miners and retail companies offset losses in the technology sector as investors looked to cash in on recent gains in semiconductor and electronics companies in particular.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 8 June 2023.